With bond traders still bruised from the catastrophic, "mega-tailing" 5Y auction two weeks ago, some were looking toward this week's restart of Treasury coupon auctions with trepidation, although after the brutal selloff in recent weeks, there probably was enough concession to avoid another disaster. And sure enough, after we got the results of of today's $58BN three-year auction, everyone can exhale because the auction was a bit better... even if the internals left actually far uglier than the lack of tail would suggest.
Starting at the top, the auction stopped at a high yield of 4.932%, up sharply from 4.475% last month, and the highest since May 2006. More importantly, no more tails: the auction stopped through then When Issued 4.934% by 0.2bps, the 4th consecutive stop through in a row.
The bid to cover dropped to 2.616 from 2.722, below the 6-auction average.
The internals were uglier: Inidrect buyers slumped to 57.59%, down from 62.15% and the lowest since February. And with Directs awarded 31.66%, or just shy of the highest on record...
... Dealers were left holding 10.7%, a drop from last month's 10.9% and below the recent average of 12.6%.
Overall, this was an uglier auction than the lack of tail would make it out, and the plunge in Foreign buyers (Indirects) was only offset by a near-record Direct bid as not even rates trading at 24 year highs was sufficiently attractive for foreign buyers.
Tyler Durden Tue, 10/06/2026 - 13:24